Why would a corporation choose to issue preferred shares rather than debt?

When a corporation issues preferred shares rather than debt, it avoids increasing its leverage (debt-to-equity ratio). Preferred shares are considered equity for financial reporting purposes and do not require the repayment of principal like debt instruments. Although they may have fixed dividend obligations, these are not legally binding in the way interest payments on debt are.

Issuing preferred shares allows the corporation to strengthen its balance sheet while potentially preserving its credit rating. Preferred shares do not directly affect leverage but provide capital without increasing debt.